It will create trust among investors, explains Kristian Andersson, the head of the Swedish bank SEB in Ukraine. He adds that Ukraine and the IMF might even sign a new and longer program next year which will create even more stability.
The International Monetary Fund, IMF recently decided to continue payments of the $5 billion 18-month Stand-By Arrangement, which was signed in June 2020. As a result, Ukraine recently received $699 million and the move comes after several months where Ukraine has been put on ice after failing to meet the demands by the IMF.
“It is very good for Ukraine that the IMF decided to give the next tranche and extend the loan program until June next year,” says Kristian Andersson, the head of the Swedish bank SEB in Ukraine, to Ukrainenu, “It is important to international investors outside of Ukraine when an IMF program is up and running. The IMF is an anchor to them – a good signal.”
Andersson points out that it looks like that the IMF and Ukraine will try to agree on a new loan program next year as well, which could be for three or five years. It would, according to Andersson, bring even more stability to Ukraine.
“Ukraine’s IMF supported economic program aims to help the authorities address the effects of the COVID-19 shock, sustain the economic recovery, and move ahead on important structural reforms to reduce key vulnerabilities,” wrote the IMF about the new payments.
Previous problems between IMF and Ukraine
The recent IMF payments come as a surprise for some as the payments seemed to have been stalled. Ukraine received the first tranche of $2.1 billion in June 2020 and was expected to receive the remaining share of the $5 billion loans over the next 18 months. That didn’t happen, however, as the relationship between the IMF and the Ukrainian leadership hit rocky ground. The IMF decided to halt payments after concerns about the independence of the National Bank of Ukraine, lack of reforms, and an attempt by the Ukrainian government to have stronger price control over utilities such as gas and electricity.
While the IMF was unhappy about those things, they were happy about Ukraine’s implementation of the landreform and bank law.
“Grateful to the IMF (Executive) Board of Governors for the decision to complete the review of the stand-by program on the allocation of a tranche of about $ 700 million. We’ll use these funds to support the financial system & combat #COVID19 consequences. The IMF program will be continued,” wrote the Ukrainian President Volodymyr Zelensky on Twitter.
Andersson says that the loan wasn’t a big surprise but that it wasn’t expected. He adds that the IMF’s happiness with some things must have outweighed concerns. Furthermore, Andersson says that Ukraine might have promised the IMF some things, which has convinced them to continue with the program.
“But did some political reasons also influence the decision? I don’t know,” says Andersson, “The IMF now sounds a bit different from a couple of months ago and we never know what is going on in the background. We have the news about Russian troops (the military buildup near the border) but we don’t know whether that has influenced the decision.”
The IMF conditions
In the recent statement, the IMF points to several things that Ukraine has promised to fulfill in the next period of the loan program related to fiscal policies, changes in the energy sector, safeguarding the independence of the National Bank of Ukraine, fighting corruption, and a number of other things such as implementing judicial reform.
Andersson says that Ukraine overall has received 12 conditions but that they are vague.
“They are not all very easy to measure, so it will be relatively easy to say that you have done something,” says Andersson, “It is not easy to measure… I think that it shows that the focus is on next year and the possibility of agreeing on a new program.”
The current program expires in June next year.
“I think that they will get the loan program next year. The western world is quite supportive of Ukraine and wants to help. But I think that one thing will be different this time. The IMF will want to see more proof of progress before making funds available to Ukraine,” he says.
